Govt set to bend on its LPG subsidy decision

Bowing to internal political pressure, the United progressive Alliance (UPA) government today clearly indicated it would increase the cap on subsidised domestic liquefied petroleum gas (LPG) cylinders, overturning its own two-month-old decision to cut back on subsidies.

Petroleum Minister M Veerappa Moily told the Lok Sabha in a written reply: "Representations have been received to revise the annual cap, which are being looked into." At present, a consumer is entitled to up to six subsidised cylinders a year. The cap, widely criticised and opposed by consumers and political parties in the Opposition as well as within UPA, was announced in September. It may be overturned in December, when Gujarat Assembly polls are over and the model code of conduct is lifted.

Earlier this month, Moily had said it was for the oil marketing companies - IndianOil, Bharat Petroleum and Hindustan Petroleum - to revise the cap. Days later, IndianOil Chairman R S Butola said the firm had no problem in offering more subsidised cylinders, provided the loss was fully compensated by the government.

Moily, who took over as the petroleum minister from S Jaipal Reddy on October 29, also said the government modulated the price of only domestic subsidised LPG and the firms were free to fix prices of other LPG categories in consonance with international prices. In Delhi, the price of a non-subsidised domestic cylinder is Rs 895, compared with Rs 410 of a subsidised one.

Subsidy on domestic LPG has been rising due to higher global prices and a weakening rupee. Currently, the subsidy is Rs 478 on each of the six cylinders, up from Rs 260 in November last year. Data with the Petroleum Planning and Analysis Cell for the first half of 2012-13 puts the domestic LPG subsidy burden at Rs 18,544 crore, or 21 per cent of the total oil subsidy. The decision to cap subsidised LPG was taken to cut firms' losses. The concern, however, is that oil firms are only theoretically free to raise the price of non-subsidised domestic LPG. Earlier this month, when the firms raised the price of non-subsidised domestic LPG by Rs 26 a cylinder, in line with global prices, they were ordered to reverse their decision the same day. These orders coincided with the announcement of Assembly elections in Gujarat and Himachal Pradesh.

At the Congress' brainstorming session at Surajkund earlier this month, of the 40-odd delegates who spoke, 37 flagged the issue of inflation and LPG price hike as a setback for the party. Congress General Secretary Rahul Gandhi has informally told some MPs he is in favour of the cap on the number of subsidised LPG cylinders being raised to 12. The figure of 10 is also being discussed.